ECS Resignations Raise Questions of Fiscal Health

Leader of state policy group says problems can be fixed.

The No. 2 staff member at the Education Commission of the States resigned last week, saying that the Denver-based group faces a financial crisis, and that she doubts the current ECS president can fix it.

By the end of the week, the accounting manager had also resigned, expressing similar concerns, and two policy analysts had announced their departures as well.

The leaders of the 40-year-old clearinghouse on state education policy responded that the group’s financial future is sound.

But Kathy Christie, its senior vice president, wrote in her May 1 resignation letter that the ECS is relying on a $1 million line of credit to balance its books, and that it has been unable to win grants to expand policy research and generate income for administrative costs.

Letter of Resignation

Kathy Christie expressed concerns about the Education Commission of the States’ financial status when she resigned last week as the group’s senior vice president.

All of the work I do for ECS supposes a future for this wonderful organization, and I believe that future is in jeopardy. The financial picture presented to you at last week's steering committee in Delaware does not, I believe, accurately disclose the financial realities facing ECS. Our cash flow position is dire, which immediately impacts the ability of the organization to sustain itself.

ECS President Piedad F. Robertson acknowledged that the group has faced fiscal challenges, but said its finances would improve once member states began paying their dues as scheduled in the coming months.

She added that using a line of credit is a common short-term strategy to help small nonprofit groups such as the ECS balance their books, and she said that the loan would be paid off by the end of the year.

Ms. Christie’s resignation as the second-ranking employee followed a steering-committee meeting the previous week in which ECS staff members didn’t “accurately disclose the financial realities facing ECS,” Ms. Christie wrote to the group’s steering committee.

The finances “are much tighter than I’ve ever known them to be,” Ms. Christie, a 17-year employee of the ECS, said in an interview last week. “These are the kinds of things that governing boards should be aware of. They need to be involved when serious issues arise.”

Three days after Ms. Christie left, Stephanie Woodruff, an 18-year employee in the accounting department, resigned. Ms. Woodruff said in her May 4 resignation letter that she had “lost confidence in the leadership of this organization” because it uses “intimidation and humiliation … to keep the staff in line.”

Katy Anthes and Arika Long, two policy analysts on leadership and governance issues, announced the same day that they would leave the ECS to pursue other opportunities in the policy world.

Ms. Christie said she decided to resign so she could communicate freely with the steering-committee members—who include state schools chiefs, governors, and legislators—without being perceived as “grousing” about the group’s current leadership.

Ms. Robertson, who has been the organization’s chief executive since February of last year, said that the group’s financial situation is secure. “We have a lot of things that are available to put in place,” she said in an interview May 3. “ECS is here to stay.”

Arkansas Gov. Mike Huckabee, who is serving a two-year term as the chairman of the ECS, said through a spokeswoman that Mr. Huckabee and other officials “will take any allegations seriously and will review any issues affecting the budget.”

But the budget materials presented during the steering committee’s meeting in late April “did not reflect a crisis” and included a clean audit of the group’s books, the spokeswoman added.

Tough Financial Climate

The Education Commission of the States, which was founded in 1965 under the leadership of former North Carolina Gov. Terry Sanford, had a budget of $9.5 million in fiscal 2004, according to the most recent financial records on the group’s Web site. Almost $5 million of that came in foundation and federal grants, with state fees providing $3.8 million more of the revenue.

The finances of the ECS have been strained for much of the past six years, according to current and former employees.

Amid the economic downturn at the beginning of the decade, states faced some of their toughest budget years of recent times, making it difficult for the ECS to collect dues to finance its basic operations.

At the same time, the stock market swoon constricted the philanthropic budgets of foundations and corporations, which are sources that the ECS and other nonprofit groups tap for research and other projects and to help cover administrative costs.

Under the leadership of Ted Sanders, the group’s president from 1999 until January 2005, the group weathered those storms by adding a corporate-sponsorship program and managing to win enough foundation grants to keep ECS programs operating.

In an interview last week, Mr. Sanders said he established the $1 million line of credit using a portion of the ECS’ endowment as collateral. He tapped into the loan when the group needed a short-term influx of cash. Some years he didn’t need to use it, he said, and the loan was always paid back by the end of the fiscal year in which it was used.

Ms. Christie said her understanding is that the line of credit has been “maxed out,” and she said she is unaware of a plan to pay it off before the end of the group’s fiscal year, Dec. 31. This is the first year the group’s fiscal year will match the calendar year.

Ms. Robertson said the group is relying on the credit while waiting for states to pay their dues, starting in June and continuing through the year. The loan will be repaid by the end of the year, she said. In 2004, the group collected $3.8 million in state fees, according to its annual report.

The organization did the same thing last year and ended the year with a clean audit, she added.

“It’s a dry season, and then you start balancing [the books] when fees start coming in,” Ms. Robertson said. “As the auditor said: ‘If we thought that this was an insolvent organization, we would have said that in our letter.’ ”

Important Departure

Whether or not the ECS faces a serious financial crunch, Ms. Christie’s resignation—coupled with the subsequent departures—presents a significant management problem for the organization, according to experts who have worked with the group in the past.

In her nearly two decades at the commission, Ms. Christie helped expand and maintain its clearinghouse on state policy, which many governors, state legislators, and state education administrators call on for information about what their colleagues across the nation are doing to improve schools.

The clearinghouse is “the one thing that we did that was most important” to state policymakers, said Mr. Sanders, a former state schools chief and a top federal education official under President George H.W. Bush. “Basically, Kathy was intellectually driving that operation.”

“Kathy’s loss is a tremendous loss,” said Christopher T. Cross, an education consultant and a former distinguished fellow for the ECS, who also served in the U.S. Department of Education under the first President Bush. “She has institutional memory and a knowledge base of what’s going on around the country. I don’t see anybody there with that depth of knowledge.”

Ms. Robertson said she wasn’t surprised by Ms. Christie’s resignation because the long-term employee “was not very happy with the direction” of the organization since Ms. Robertson succeeded Mr. Sanders last year.

“She has trained her staff very well,” said Ms. Robertson, who had been the president of Santa Monica College in California and other community colleges before moving to the ECS. She had also been state secretary of education under Massachusetts Gov. William F. Weld from 1991 to 1995.

“As far as we’re concerned, it’s not a big issue,” she said of Ms. Christie’s departure.

Shift in Philanthropy

In recent years, the ECS and other long-established education groups have faced financial pressures as foundations changed their grantmaking practices.

“Many of the foundations are getting far more strategic about their agendas and are investing in particular advocacy for something,” said Mr. Sanders, who is now the executive chairman of Cardean Learning Group, a Stamford, Conn.-based company that provides online college courses.

And there has been a proliferation of advocacy organizations for those grantmakers to turn to. Among them are the Education Trust, which works for the improvement of schools serving low-income children; the Center on Education Policy, which is tracking the impact of federal education policies; and the Alliance for Excellent Education, which promotes high school improvement.

Those nonprofit groups—all based in Washington—are supported with grants and donations.

The shifts in philanthropy have made it difficult for the ECS and other organizations that promote themselves as neutral analysts of state policy to compete for private funds. The 2004 ECS annual report lists grants from the Wallace Foundation, the Bill & Melinda Gates Foundation, and the Atlantic Philanthropies, among others. While some of those grants continue, the organization has not won a significant new grant from a foundation in more than a year, say ECS employees who asked not be identified.

In addition, the ECS struggles under a governance structure that reflects diffuse interests, Mr. Cross said. “For ECS, all of the people in the leadership have other organizations who represent them in a primary way,” Mr. Cross said.

The leaders, he said, tend to direct “time and attention” to those groups—for governors, state lawmakers, and state education chiefs—rather than to the ECS, which handles general education policy issues.

Vol. 25, Issue 36, Pages 1, 24

Published in Print: May 10, 2006, as ECS Resignations Raise Questions Of Fiscal Health

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